• How the concept originated
• The current state of the model
• Satellite accounting and cultural activity
• Cultural capital and long-term growth

How the concept originated

The report which inspired MCA’s knowledge-base project visualised the creation of a model measuring the economic importance of the music sector along two streams: performance and support, ultimately adding all net contributions from music-related activities into a gross value of music or “Music GDP” (see chart below). From the music creators and performers at the apex, the first stream takes in live performances, the recording industry, and other use or creation of recorded or ‘mediated’ music. The primary beneficiaries of the support of educational, organisational, commercial and other services are the music creators and performers but other flows directly benefit live and recorded music performances.

The development of statistics to measure the economic contribution of music is an ideal, which is not matched by actual data. One of the important roles of this knowledge base is to advocate that this becomes possible in future. Meanwhile, we refer to the structural description of the knowledge base and the music sector in the initial article of the welcome section. 

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The current state of the model

The creative category in the diagram contains the following logical sequence:

1. Primary creators of art, contemporary and traditional music (composers and songwriters)
2. Musical genres, classified again into art, contemporary and traditional music
3. Recorded music performance.

The support section lists the same six sub-categories that we identified in the welcome section.

Numerical analysis is mainly confined to the statistics section, except for the occasional illustrative table in the narrative performance and support sections.

The music sector model, as illustrated, incorporates the music industry, which may be defined as comprising all or most of the performance stream plus areas like distribution, production of instruments and equipment, overseas trade in music goods and services, and royalty flows. There is no problem with that. We just see music-making through live and mediated performance, however created, as the key, and anything that helps sell or produce it or remunerate the creators and performers, and protect and advance their position, as support.

The main virtue of the music sector model is that it attempts to include everything that makes music in Australia successful economically, socially and culturally, and that naturally includes music education and the other elements shown in the model.

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Satellite accounting and cultural activity

Since 1993, so-called satellite accounts have been developed for activities that overlap the conventional industry classes used in national accounting. The purpose is to focus on a certain field or aspect of economic and social life in the context of the conventional national accounts.

Satellite accounts use a two-way table or matrix having the conventional industry classification along the left-hand side and columns showing the total gross value added by each conventional industry, the contribution made by the activities under consideration, and the rest which is not due to those activities.

Satellite accounting originated in the United Nations Statistics Division and resulted in the publication of the 1993 System of National Accounts or SNA, which has since been continually updated. The last chapter, 21, introduces the satellite accounts. The development of input-output tables, using more detailed industry classifications than those in the published satellite accounts to trace the monetary flows between industries, has made it possible to measure the influence of particular activities on each of the conventionally classified industries in the national accounting framework.

For instance, it was calculated that tourism contributed 41.7% of the factor income of the accommodation, cafés and restaurants industry in Queensland in 2003-04, compared with 14.1% for cultural and recreational services and slightly lower percentages for transport and storage and retail sales. In contrast, the direct contribution of tourism to mining, public utilities and other industries was nil or close to nil. The overall contribution of tourism to total factor income in Queensland was 4.7%. (Factor income is related to gross value-added by an industry, in that both exclude net indirect taxes which together with the total GVA define the GDP.)

Tourism was the first subject to be taken up by several countries for satellite accounting purposes. The World Tourism Organization in 2000 issued a recommended framework for tourism satellite accounts in cooperation with the OECD, which was adopted by the UN Statistics Division. Many countries have adopted the framework including Australia, which has issued annual tourism satellite accounts since 1998-99. The Queensland Office of Economic and Statistical Research (OESR) has published two publications, including the one quoted in the previous paragraph. The other is a set of regional tourism satellite accounts for 1998-99, which seems to be a unique effort (The Contribution of International and Domestic Visitor Expenditure to the Queensland Regional Economies: 1998-99, Brisbane 2002.)

Other Australian satellite accounts have been developed for non-profit institutions, information and communication technology, and, less successfully because unduly limited in scope, for the environment. The latter only takes land, subsoil assets such as minerals, and native standing timber into account. “Environmental assets such as atmospheric and terrestrial ecosystems are outside the scope of economic assets as they do not have an identifiable owner who can derive an economic benefit from their use. This is not to suggest that these assets are of no value. On the contrary, many of them are essential to life itself. However, even if they fell within the definition of an economic asset, the valuation techniques available to measure such assets tend to be arbitrary and controversial.”

With climate change rapidly becoming recognised as a major threat, this view needs to be revised. Other proven techniques could be applied to a satellite account model. Scenario planning, for instance, considers a range of possible credible futures, each of which could be fitted with plausible and generally agreed measures of the impact of damaged atmospheric, terrestial and marine ecosystems even if these values cannot be verified by conventional economic analysis.

Similar considerations apply to cultural pursuits, as discussed in a forthcoming paper on cultural capital and the need to sustain it.

Other countries have developed preliminary satellite accounts in other areas, including a household satellite account to measure the economic value of unpaid work by households in the UK (including volunteering). Both this and the Australian work on non-profit institutions (showing culture and recreation to account for 23% of the total value) have potential relevance for the understanding of the music sector, given the large proportion of participants working on a voluntary or lowly-paid basis.

It is important to note, however, that these accounts go beyond the conventional concept of national accounts which do not place values on unpaid voluntary and household work. In this, they differ from satellite accounting concepts such as tourism GDP which are based on conventional national accounting principles.

The tourism satellite accounts provide the potentially best model for a cultural satellite account to follow. As noted above, it is based entirely on economic values, which if the recommendations of the statistical framework report were to be followed would provide the first essential measure of the importance of the music sector. Getting a handle on the importance of volunteering and the work of non-profit institutions would add to the understanding of the social and cultural importance of the music sector - but further down the road. There may also be other ways to quantify the socio-cultural importance of musical activity, especially once we have developed a ‘music GDP’ at the core.

Satellite accounts have been alleged to lead to double counting of the country’s economic product. Clearly, this is not so. No one could seriously suggest, in the case of the tourism satellite accounts, that they constitute an addition to the economic product measured by the conventional national accounts. The tables in the tourism satellite accounts are set out clearly to indicate the proportion of a given industry group that benefits from tourism. Tourism, and cultural activities likewise, is not an industry in the normal national accounting sense, but a range of activities which influences the conventional industries to a greater or lesser extent. That’s what this approach is all about, and why it is important to ensure that the goal of a reliable measure of ‘music GDP’ gets securely on the radar.

Cultural capital and long-term growth

The economic model underestimates the true importance of the music sector by ignoring the social and cultural factors that provide a healthy music sector with further economic activity in the medium and long term. The published statistical framework report discusses this in some detail.

Another paper on this section of the knowledge base takes this further: Cultural capital as an independent economic force on the ‘cultural capital’ page. It discusses the need, based on economic theory, to nurture the national cultural capital stock in the interest of economic growth as well as general social and cultural development. Dick Letts’ paper in the international trade and promotion section, International free trade and the issues for music and music copyright, is also very relevant, exploring the importance of cultural diversity in an era of international trade agreements, notably the current Australia-United States Free Trade Agreement (AUSFTA).

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